Double Taxation Agreement between Switzerland and Australia: An Overview
Double Taxation Agreement (DTA) is an agreement between two countries that helps in avoiding double taxation of income and ensures that taxpayers are not subject to tax on the same income in two or more countries. Switzerland and Australia signed the Double Taxation Agreement on 30 July 2013, which came into effect on 1 January 2015.
The DTA between Switzerland and Australia covers both federal and state taxes in Australia. The DTA applies to individuals, companies, and other legal entities that are residents of one or both of the countries. It also applies to income derived from sources in one or both countries.
The DTA provides for the following:
1. Residence: The DTA provides for rules that determine an individual`s residence for tax purposes. This is important because the country of residence has the right to tax worldwide income, while the country of source can only tax income derived from that country. The DTA ensures that residency is not determined differently in the two countries, which would result in double taxation.
2. Permanent Establishment: The DTA sets rules for determining whether a business has a permanent establishment (PE) in a country. A PE is a fixed place of business through which a business carries on its activities. The DTA ensures that if a business has a PE in both countries, it is taxed in one country only, and not subject to double taxation.
3. Dividends, Interest, and Royalties: The DTA provides for reduced withholding tax rates on dividends, interest, and royalties paid between the two countries. This means that these payments are taxed at a lower rate, reducing the overall tax burden of the payee.
4. Capital Gains: The DTA provides for rules regarding the taxation of capital gains. Generally, if an individual or company sells an asset located in one country and realizes a capital gain, that gain is taxed in that country. However, if that individual or company is resident in the other country, that country may also tax the gain. The DTA ensures that double taxation does not occur by providing for the allocation of taxing rights.
5. Other Income: The DTA also covers other income such as employment income, business profits, and income from real property. This ensures that double taxation is avoided on these types of income as well.
The DTA between Switzerland and Australia is an important agreement that helps to facilitate trade and investment between the two countries. It provides taxpayers with greater certainty regarding their tax obligations and reduces the risk of double taxation. Businesses and individuals operating between Switzerland and Australia should take into account the DTA when conducting their activities to take advantage of the reduced tax rates and avoid the risk of double taxation.